An investment bank has hit Tesco with a “double downgrade” and slashed its target price on Britain’s biggest supermarket by more than 20 per cent.

Morgan Stanley, a joint house broker to J Sainsbury, cut its price target from 480p to 375p and moved from overweight to an underweight rating.

The move comes just hours ahead of Tesco’s key Christmas trading statement tomorrow.

Shares in Tesco, which were trading at more than 490p last November, dropped 2.5 per cent to 415p, 11p lower on the day.

Analysts believe Tesco may have generated like-for-like sales growth of less than 4 per cent in the run-up to Christmas, given fierce competition from Morrisons.

Geoff Ruddell, Morgan Stanley’s new retail analyst, said he did not doubt Tesco’s “quality” or its ability to hit earnings forecasts consistently.

However, he said that Tesco did not merit its current premium rating to the rest of the stock market.

He said: “Tesco has recently been trading at its highest price-earnings rating, relative to the FTSE 100, in more than 20 years. We believe that now is not the time to gain exposure to the long-term Tesco growth story.”

Backing his argument, Mr Ruddell said that Tesco had “de-rated” in each of the interest rate cutting cycles of the past two decades.

He added that Tesco’s like-for-like growth – a key measure of year-on-year sales performance – could slow to 3 per cent in 2008-09.

Tesco refused to comment.

Nick Bubb, an analyst at Pali International, said he feared that Tesco’s Christmas like-for-like growth could be 3 per cent and that such an outcome would be a “big miss”.

Sainsbury’s last week delivered growth of 3.7 per cent for the last three months of 2007. It refused to split out its December trading.

The Times reported last week that Sainsbury’s was understood to have missed internal sales and profit targets in the run-up to Christmas.

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